The government has suffered a surprise defeat in the House of Lords over its plans for directly elected police commissioners in England and Wales.
Peers backed a Lib Dem amendment, by 188 votes to 176, blocking the idea.
Critics had warned that the plans could do "irreparable damage" to the police service by putting too much power in the hands of one person.
The Home Office said the policy had been backed by both coalition partners and they would seek to proceed with it.
The plan for directly elected police and crime commissioners, which would replace elected police authorities in England and Wales - excluding London - is one of the government's flagship crime and policing policies.
'Lack of evidence'
Peers concerned about the plan had been expected to push for the idea to be piloted in a handful of areas rather than being introduced around the country at the same time.
But the Lords went further during Wednesday's debate, as Labour and Lib Dem rebels joined forces to remove clauses from the Police Reform Bill giving the go-ahead to the elected commissioners.
They argued commissioners should be chosen by a police and crime panel from among its members and not elected - a position supported by a majority of 12 in a vote at the end of the debate.
Lib Dem peer Baroness Harris, who lead the opposition to the plans, said they posed "great risks to policing" and raised doubts about who would have the power to hire and fire chief constables.
"I am very concerned that the evidence base for making this change is incredibly thin and the consequences of implementing it have not been thoroughly researched or properly thought through," she said.
But Home Office minister Baroness Browning said: "The current model with police forces accountable to police authorities simply doesn't provide the public with the mechanism for holding their police service to account."
She said: "A singly elected representative means a responsive voice to local people, both visible and accountable - an elected individual charged with being the voice of some of the most vulnerable people, particularly those who are victims of crime.
"Somebody who ensures those voices are heard and acted upon at both the local and national level."
Among those voting against the government included former Liberal leader Lord Steel and former Metropolitan Police commissioners and now cross-bench peers Lord Blair and Lord Condon.
BBC political correspondent Sean Curran said the vote was a surprise and the government could now face a battle with the Lords as it seeks to reintroduce the clauses into the legislation, potentially having to make further concessions to do this.
However, it may wait until the legislation returns to the Commons before seeking to re-insert the proposals, he added.
'Lib Dem muscle'
The policy, although endorsed by the Conservatives and Lib Dems in their coalition agreement a year ago, has been a source of growing tension between the two parties in recent weeks.
Earlier on Wednesday, Lib Dem leader Nick Clegg called for his party to be "more muscular" in standing up for his party's values in government and more assertive in key policy areas.
Ministers have acknowledged concerns about how the commissioners would be held to account and the role of the proposed police and crime panels designed to oversee their powers. They say adequate "checks and balances" will be put in place.
After Wednesday's defeat, the Home Office said the election of police commissioners was clearly set out in the coalition accord - the basis for the government's policy programme.
"So while we will consider the debate in the Lords, we will look to redress this in the Commons," a spokesman said.
But Labour said the "heart had been ripped" out of the proposals by the Lords defeat and urged the government to make an urgent statement on the future of the legislation - which they suggested could not survive in its current form.
"The consensus is that having single-elected commissioners who can just hire and fire chief constables at will would be a disaster," shadow home office spokesman Lord Hunt told the BBC.
"It would reduce public confidence, it would mean policeman having political labels. The Lords gave it due consideration and found the bill wanting and they have chucked out the worst bits of it."